CME denies problem with soy crush spread after futures pits close
By Tom Polansek
CHICAGO, July 30 (Reuters) - CME Group Inc's electronic trading platform can still accommodate a popular type of spread trade involving soybean futures now that open-outcry pits have closed, the exchange operator's president said on Thursday, responding to complaints by grain brokers about problems in the market.
CME surveys of market participants show they are satisfied with their ability to electronically execute the transactions, known as crush spreads, said Terry Duffy, CME president and executive chairman.
The company does not plan to change market rules or its trading platform in response to the complaints.
"Is it 100 percent perfect for every participant? Maybe not, but talking to the participants that use that trade, they feel very confident and comfortable that the technology that we have in place can execute those soy crush trades just fine," Duffy told Reuters.
Brokers raised concerns about their ability to execute crush spreads after CME on July 6 closed century-old open-outcry futures pits, where some transactions previously took place. CME held an emergency meeting on the issue last week.
Soybean processors establish a crush spread by buying soybean contracts and selling soymeal and soyoil contracts to lock in their profit margin. Before the futures pits closed, floor traders took on the risk by offering the three-legged spread at one quoted price, in dollars and cents per bushel.
CME's electronic matching software allows for a standard crush spread at the ratio of 10 soybean contracts to 11 soymeal and 9 soyoil. But South American processors, for example, like to buy seven soybean futures contracts and sell 11 meal and 11 soyoil to hedge what is a higher oil yield than at U.S. crushers, traders said.
In February, shortly after CME announced plans to close the futures pits, market participants asked CME executives during a closed-door meeting how crush spreads would be executed electronically.
CME and clients became more comfortable with the process after the company's chief operating officer "showed people the technology, the functionality, as it relates to the crush trade on the screen," Duffy said.
CME closed most of its open-outcry futures pits despite resistance from some floor brokers and traders who said the move could hurt end-users of the massive Treasury and Eurodollar markets. They use multi-legged spreads similar to the soy processors.
In the Eurodollar and Treasury markets, CME is making sure technology is in place to allow clients to execute their trades, Duffy said.
(Editing by Matthew Lewis)
